US debt default could mean loss of $40 billion in federal aid to Ohio

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One aspect of the current debt crisis that hasn’t been explored, is in addition to the inevitable credit crunch bringing the economy to a screeching halt by making it impossible for individuals or businesses to borrow, there is another major threat to the state’s economic situation. And that is, if the debt limit is not raised, the United States Government will be unable to borrow money to cover its debts, requiring it to pay out only as much as it collects. That means a 40% reduction in federal spending, at minimum, as that is the amount spending currently exceeds revenue.

The State of Ohio saw $108 billion in federal funds come our way in 2009, the last year for which data was available. That includes $63 billion in retirement and disability payments, and other direct payments to individuals in the state (such as Medicare, pell grants and unemployment compensation). That number also includes $9 billion in federal contracts, nearly $7 billion in federal wages and around $25 billion in grants (programs such as Medicaid, head start, school lunch, WIC, food stamps, highway construction etc).

If the debt limit is not raised, that is $40 billion pulled out of Ohio’s economy. It represents $40 billion that isn’t spent at the retail level, isn’t taxable income for the state or local government, isn’t going to retirees and kids and veterans, and isn’t creating jobs. Some states are in even worse shape than us. The five states with the highest proportion of federal funding were just warned that their bond ratings were at risk. This is a real problem.

It seems safe to conclude that John Boehner gets it and will ultimately push for a deal, but can he count on other members of Ohio’s GOP Congressional delegation to vote for it? Are they willing to risk default and be responsible for that type of hit to the state’s economy? Report back if you’ve heard from your Member of Congress. The outcome of this debate on working class Ohioans is too huge to risk just to make sure some incredibly wealthy people do not have to suffer in the least.